Since April, forwarders in Malaysia have prepared for the long-rumored demise of their national carrier’s lift to Frankfurt. By mid-May, MASkargo, the freight arm of Malaysia Airlines, finally confirmed that it would scrap both its passenger flights and its thrice-weekly freighter flights to Frankfurt by the end of the month.
Mahes Alangarasingam, head of airfreight, Malaysia, at DHL Global Forwarding (DGF), was unfazed. He remarked that this would strengthen MASkargo’s focus on its European hub in Amsterdam, adding that, “This is fine with DGF as long as this is at cost competitive levels.” Indeed, MASkargo said it would increase its weekly cargo flights to Schiphol Airport from three to five by May 31.
Others, however, doubt if the carrier’s beefed-up Amsterdam service will last much longer. There has been much speculation that Malaysia Airlines may well sell many of its long-haul aircraft and withdraw from European routes altogether, as it did from the trans-Pacific arena a few years back. Ong Chin Keong, general manager of forwarder Transcargo, said he shares this view. Whatever happens, a massive revamp of the struggling carrier is clearly in the works.
Malaysia Airlines has not reported an annual profit since 2010. The unexplained 2014 disappearance of flight MH370 en route from Kuala Lumpur to Beijing and the shooting down of flight MH17 over Ukraine months later have hurt, but they were not the origins of the airline’s woes, which began much earlier and have been broadly blamed on fierce competition (especially from low-cost passenger rivals) and poor management.
The increasingly desperate situation at Malaysia prompted a takeover bid by sovereign wealth fund Khazanah last year, which aims to return the airline to profitability by 2017. A sweeping, US$1.9 billion restructuring move was subsequently set in motion, calling for the elimination of 6,000 of the carrier’s 20,000-strong workforce and a fundamental revamp of its freighter fleet, which will possibly see the elimination of the long-haul network. These changes would appear to open the door to a shift in focus toward the intra-Asian arena. However, the cull of freighters may go deeper than that.
There have been reports in the media that Malaysia Airlines is looking to divest itself of its two 747-400 and four A330-200 freighters as well, which would effectively end its involvement in the maindeck business. Asked about these allegations, management commented that it was “exploring fleet options.”
On the sectors to Europe and Asia, the anticipated regrouping would have relatively minor impact on forwarders. Ong noted that the demise of the Frankfurt flights would reduce the available choices, but added that there would still be sufficient lift in the market. He pointed to the Middle Eastern carriers, which have stepped up their flights into Malaysia.
The biggest challenge for lift is on the trans-Pacific sector, forwarders reported. The Malaysia-U.S. corridor has been a challenge for the past three or four years, remarked Alangarasingam, adding that strong yields out of Vietnam are making it tough to get service to North America at non-premium rates.
Ong sees a shift to intra-Asian trade, which he expects to gain further momentum from the planned integration of ASEAN later this year. Manufacturing in China has been weaker, with some production migrating to other Asian countries, he noted. In the long run, he anticipates a decline in manufacturing and a rise in imports. The integration of ASEAN will open the door to a possible role for Malaysia as a distribution center for the region, although it faces tough competition in this from Singapore, he said.
Transcargo is looking to open new locations – partly in preparation for this scenario and partly due to strong growth, which has been in excess of 20 percent a year. Ong expects a similar growth rate this year. DGF, which claims the top IATA forwarder spot in the market, has also seen business growth, reporting a 4 percent increase in exports and an 8 percent rise in exports in the first quarter.
MASkargo has also reported a rise in throughput in its cargo facility at Kuala Lumpur. From the forwarders’ perspective, this threatens to exacerbate problems with service levels. The national forwarder association in Malaysia has repeatedly slammed the carrier for poor service. “We used to get our cargo three or four hours after its arrival, now we have to wait eight or ten hours,” said Ong.
MASkargo’s management, which has been led by an acting CEO since its previous head resigned last summer, has its hands full. In January this year, it signed a deal with Unisys to replace its mainframe-based system with the cloud-based Logistics Management Service of the IT provider.